Governance, Risk & Compliance: Future Trends & Strategies

As we all know, governance, risk, and compliance (GRC) are the three core elements in the corporate world referring to an organization’s strategy for handling the interdependencies among corporate governance policies and framework, risk management and mitigation approach along with regulatory and compliance requirements of companies. The objective of this article is to understand the future of corporate governance with compliance and risk management mechanisms and explore strategies through which companies can adopt future dynamics.

Governance Risk Compliance

Source:  Germane Analytics for GRC

Governance Framework

Governments worldwide are embracing digital transformation, leveraging technologies such as artificial intelligence, blockchain, and big data analytics to enhance service delivery, transparency, and citizen engagement. Additionally, the rise of decentralised governance models facilitated by technologies will empower direct citizen participation, reducing reliance on central authorities. Further, there is a shift towards e-governance and online services implying responsive, accountable, and transparent governance.

Addressing global challenges such as climate change and cybersecurity threats will require enhanced global cooperation and governance structures. Crucially, the future of governance will be shaped by the ethical choices of governments, policymakers, and citizens, emphasising inclusivity and the protection of individual rights as critical factors in shaping a responsible and effective governance paradigm worldwide.

Compliance Standards

The future landscape of compliance standards is poised for transformation, driven by dynamic factors such as technological advancements, global business shifts, and evolving societal expectations. Multiple trends are likely to shape the future of compliance standards.

Digital compliance will be pivotal as businesses increasingly operate online, prompting the evolution of standards to address cybersecurity, data protection, data privacy, and digital ethics. This will lead to the emergence of new regulations ensuring the secure and ethical utilisation of technology across sectors. The globalisation of businesses will necessitate efforts towards global harmonisation, aligning regulations internationally to create a more consistent compliance landscape for multinational corporations.

Additionally, compliance standards will reflect the growing emphasis on environmental and sustainability considerations, with businesses facing stringent regulations on carbon emissions, waste management, and sustainable practices. Supply chain transparency and ethical sourcing will be focal points, requiring companies to disclose information about labour practices, environmental impact, and raw material sourcing. Social and human rights compliance will gain prominence, emphasising ethical business conduct, and adherence to social responsibility standards. It is crucial to recognise that compliance standards will have to continually adapt to the changing global landscape.

Risk Factors

The key risk factors in the future of governance and compliance include cybersecurity threats, encompassing data breaches, hacking, and ransomware attacks, as the reliance on technology grows. The evolving regulations emphasise the need for dynamic compliance management strategies to adapt to changing requirements and avoid non-compliance. Further, global operations pose cross-border compliance challenges, as organisations must navigate diverse international regulations, legal frameworks, and cultural nuances. Additionally, risks associated with financial fraud, embezzlement, or mismanagement can have severe consequences on an organisation’s stability and reputation. Effectively addressing these risk factors necessitates a proactive and adaptive approach to governance and compliance.

Strategies to Adopt Future Dynamics

Here are some strategies and forward-thinking initiatives that could be employed by organisations to harmonise the governance framework, compliance standards, and risk factors for adopting to the future dynamics: –

  1. Understanding the Organisation’s Governance Structure

It is pertinent for organisations to gain a deep understanding of their governance frameworks, including board structure, decision-making processes, and the roles and responsibilities of key executives and stakeholders. The failure of governance structure and procedures may lead to the collapse of the entire system as in the case of Yes Bank where poor governance led to an inability to raise capital due to under-reporting of NPA of the bank.

  1. Identify Governance and Compliance Risks

The next strategy involves the evaluation of governance practices against industry best practices, corporate governance codes, and regulatory guidelines to identify gaps and potential risks and carrying out a thorough review of existing policies, procedures, and processes to identify compliance risks. Failure to comply in this regard may lead to huge penalties. An example from recent times is the JPMorgan case wherein a fine of $125 Million was imposed by the Securities and Exchange Commission due to ‘widespread and longstanding failures’ by the firm in maintaining and preserving written communications.

  1. Risk Assessment and Prioritisation

Organisations should identify and assess governance and compliance risks, considering financial, legal, operational, reputational, and strategic risks associated with governance and compliance failures, using risk scoring methods to prioritise identified risks based on their impact, likelihood, and speed of occurrence and focusing on high-impact, high-likelihood risks for mitigation efforts. The Volkswagen emissions scandal in 2015 is an example where the company failed to assess and manage the risks associated with alleged cheating on emissions tests, resulting in a major scandal and huge financial losses.

  1. Mitigation Strategies

Developing detailed mitigation plans for high-priority governance and compliance risks and clearly outlining the steps, responsibilities, timelines, and resource requirements, is necessary to ensure alignment with the organisation’s strategic objectives which strengthens the existing policies and procedures in line with regulatory requirements and industry standards. As an example to address the risk of water scarcity, Infosys has a strategy in place, with its sustainability team and enterprise risk management (ERM) conducting assessments at the facility and enterprise levels.

  1. Monitoring and Reporting

It is equally important for organisations to implement continuous monitoring mechanisms to track adherence to governance and compliance policies and prepare regular reports for management and the board. The significance of reporting is also stated in the guidance note prepared by the Organisation for Economic Cooperation and Development and Basel Institute on Governance, which emphasises the need for designing a High-Level Reporting Mechanism for businesses.

  1. Stakeholder Engagement

This can be implemented by maintaining open communication channels with stakeholders, encouraging reporting of potential governance and compliance issues, establishing a confidential reporting mechanism to protect whistleblowers, setting up feedback mechanisms within the organisation to gather insights from employees, and using the feedback to refine governance and compliance strategies and improve internal processes. The Coca-Cola company has a different engagement strategy for customer retention wherein the company interacted with its consumers to create brand value and gained huge revenue through marketing and promotion strategies.

  1. Continuous Improvement

  • Conducting periodic reviews of governance and compliance practices.
  • Assessing the effectiveness of implemented strategies and making necessary adjustments to enhance the organisation’s governance framework.
  • Comparing the organisation’s governance and compliance practices with industry peers and best practices.

By following these strategies and learning from these examples, one can systematically assess and mitigate governance and compliance risks, ensuring that the organisation operates ethically, legally, and in alignment with industry standards and regulatory requirements.

Conclusion

The future of GRC is intricately tied to the ongoing and accelerating digital transformation of the business landscape. As organisations continue to embrace advanced technologies, it is evident that GRC functions must evolve to meet the challenges and opportunities presented in this dynamic environment. The integration of digital tools, data analytics, and automation into GRC processes holds the promise of increased efficiency, better risk management, and enhanced compliance. However, this transformation comes with complexities such as data quality and integrity, dynamic regulatory landscape, lack of standardisation, difficulty in change management, and more.

References:

https://www.oceg.org/ideas/what-is-grc/

https://www.techtarget.com/searchsecurity/definition/governance-risk-management-and-compliance-GRC

https://www.icsi.edu/media/webmodules/GOVERNANCE_RISK_MANAGEMENT_COMPLIANCES_AND_ETHICS.pdf

https://www.cgi.org.uk/knowledge/governance-and-compliance

https://core.ac.uk/download/pdf/216957836.pdf

http://www.germane-analytics.com/corporater-grc.php     

https://www.ndtv.com/india-news/yes-bank-fraud-rs-5-000-crore-fraud-by-yes-banks-rana-kapoor-wadhawans-probe-agency-2913012 

https://www.sec.gov/news/press-release/2021-262 

https://www.bbc.com/news/business-34324772

https://www.wbcsd.org/Programs/Redefining-Value/Making-stakeholder-capitalism-actionable/Enterprise-Risk-Management/Resources/Enterprise-Risk-Management-case-studies/Infosys

https://baselgovernance.org/sites/default/files/2019-01/Designing_a_HLRM_EN.pdf

https://www.campaignindia.in/article/consumer-engagement-how-coca-cola-fosters-human-connections/418266

Image Credits:

Photo by Melpomenem on Canva

Developing detailed mitigation plans for high-priority governance and compliance risks and clearly outlining the steps, responsibilities, timelines, and resource requirements, is necessary to ensure alignment with the organisation’s strategic objectives which strengthens the existing policies and procedures in line with regulatory requirements and industry standards. As an example to address the risk of water scarcity, Infosys has a strategy in place, with its sustainability team and enterprise risk management (ERM) conducting assessments at the facility and enterprise levels.

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